August 20, 2005

NEWSFLASH--LAWS OF ECONOMICS NOT REPEALED:

Modestly priced condos grow rare (Kimberly Blanton, August 20, 2005, Boston Globe)

In the current red-hot condominium market, modestly priced units in downtown Boston are growing scarce.

Sales of condos priced under $500,000 are declining in the city's core neighborhoods but not because demand for these units has slowed. Sales fell because properties are appreciating so fast there are fewer available in that price range, according to a downtown market analysis by Boston real estate brokerage Otis & Ahearn.


When has demand of a scarce product ever kept its price low?

Posted by Orrin Judd at August 20, 2005 12:00 AM
Comments

The mean annual earnings for Boston-area white collar occupations are $ 56K. Assuming a yuppie couple, that's $ 112,000.

$ 500,000 - $ 750,000 condos that don't overlook the harbor are just...

Silly. Crazy.

Posted by: Michael Herdegen at August 20, 2005 10:49 AM

In short supply.

Posted by: oj at August 20, 2005 10:52 AM

They're in short supply because people are agreeing to pay for them, which is what's silly and crazy about it.

Why would anyone pay $ 500,000 for a condo with a scenic view of Wong's Chinese Takeout ?

It's like buying an $ 8,000 handbag - fine for Paris Hilton, not a good idea for Ms Average American.

Posted by: Michael Herdegen at August 20, 2005 1:07 PM

Because there's a housing shortage.

Posted by: oj at August 20, 2005 2:40 PM

sigh

Not so long ago, I used to live in Framingham.

There's no shortage of housing in the Boston area.

Posted by: Michael Herdegen at August 20, 2005 7:52 PM

No, they're just bidding up prices in downtown Boston.

That article was written in Feb. of '03.

Why don't we fast forward ?
(All emphasis is added).

The Greater Boston Housing Report Card 2003 was released on April 6, 2004:

The Report Card, which covers 161 cities and towns in Greater Boston, revealed that [...] average rents dipped by almost two percent. [...] Barry Bluestone, Director of the Center for Urban and Regional Policy (CURP)* at Northeastern University and one of the authors of the report: "[There should be an] effort to increase housing production beyond even the improved level we saw in 2003” [...] Requests for building permits were up 22 percent, multifamily housing production increased substantially, and there was continued strong performance by nonprofit developers.

Rental costs generally: [B]etween 2003 and 2004 higher quality properties have reduced in price...

Tom Witkowski, Boston Business Journal, Aug. 7, 2005:

Inventory of single-family houses is piling up in Greater Boston in a sure sign the residential real estate market is slowing. Sellers [...] are growing increasingly frustrated as their houses sit on the market for weeks and months. [...] Price reductions from $20,000 to $60,000 are not unusual [...] The number of listings of single-family houses in 17 towns in Greater Boston was up 25 percent or more last week compared with one year ago. [...] Needham, for example, had [...] an 87 percent increase from the same day last year.

* The source of the article that you provided the URL for.

Posted by: Michael Herdegen at August 20, 2005 10:00 PM

Hey, no fair editing your own comments, and leaving me hanging.

Posted by: Michael Herdegen at August 21, 2005 1:47 AM

Yeah...

That Price Waterhouse Coopers report is 4 1/2 years old.

They recommend buying multi-residence and apartment buildings in the Greater Boston area, and that still seems like good advice.

Two of the links that I provided also mention that property in Mass., especially the eastern half, has historically appreciated much faster than the national average, and that Boston is behind only NYC and SF as the highest cost of housing area in the U.S.

Define "tight".

The Greater Boston area certainly has a far greater occupancy percentage than Junction City, KS...
I'm sure that renters and prospective homebuyers would like to see another 100,000 units constructed soon.

However, the point of this thread is that prices for condos with no particular appeal are skyrocketing in Boston.

You contend that it's because the overall housing market is red-hot.

That is clearly not the case.

I maintain that it's either greed or stupidity.

BTW, the PCW report also mentioned that Boston is a prime destination for immigrants, and that's certainly true of Brazilians.
Metro Boston is one of the top three places that Brazilians move to when coming to the U.S., and there are "Little Brazils" around the area.

Posted by: Michael Herdegen at August 21, 2005 2:15 AM

This is helping your case ?

From the Nation's Building News Online:

[A] period when rental vacancy rates were near record highs and rent concessions were commonplace [...] demand for multifamily rentals will receive a bit of a boost from slowly rising interest rates that will push up monthly mortgage payments enough to slow the recent flow of renters into homeownership. [V]acancy rates last year [2004] rose to their highest levels since the early 1990s, when the industry was in recession. For buildings with five or more units, they reached a peak of 12% in the second quarter, according to the Census Bureau. Vacancies in these buildings shifted down in the second half of 2004, but remained at a relatively high 11.5%. [...] Among the nation’s 75 largest metropolitan areas, those with the [lowest] overall vacancy rates for all multifamily units in 2004 were in: [10 metro areas] and Boston, 6.0%.

So, one out of every sixteen Boston apartments was empty in 2004, and for the nation as a whole, one out of every nine apartments was empty, causing rents to fall in the Greater Boston area, and landlords to give away rent-free months in other areas.

The NBN expects vacancy rates to drop in '05 - because they expect fewer people to be able to afford to buy homes.

This ain't helping the "Boston housing shortage theory", nor the "American housing shortage theory".

In fact, this reference clearly buttresses both my Greater Boston analysis and my analysis of the American housing market as a whole.

Thank you.

Posted by: Michael Herdegen at August 21, 2005 2:40 AM

National Real Estate Investor Online, Parke Chapman, Jul 1, 2005:

Last year, condo converters bought $13.3 billion worth of U.S. apartment properties in a whopping $10.3 billion increase over their 2003 take. That's a 350% year-over-year jump driven by low interest rates and soaring single-family home prices.
The investment pace isn't slowing. Between Jan. 1 and June 15, converters bought $7.05 billion of apartment properties, which is on a pace to meet or exceed last year's $13.3 billion volume, reports Real Capital Analytics. [...]
[Zanda Lynn, a director at Manhattan-based credit ratings firm Fitch Ratings] predicts that roughly 10% of all condo conversion loans originated this year will ultimately default. [...]
[She] says conversion sponsors looking to turn a quick profit pose the greatest risk to lenders. “This condo conversion activity just isn't sustainable in the long run. It's the investors who buy these properties at high prices and might not be able to sell them for the right price who will ultimately default on these loans.”

Posted by: Michael Herdegen at August 21, 2005 3:35 AM

Low vacancy rates is a shortage. A few speculators may well get burned at some point.

Posted by: oj at August 21, 2005 8:02 AM

"[V]acancy rates last year [2004] rose to their highest levels since the early 1990s, when the industry was in recession."

Posted by: Michael Herdegen at August 21, 2005 4:50 PM

Michael:

Yes, that was the start of the last housing boom.

Posted by: oj at August 21, 2005 6:22 PM
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